Retirement Saving: Working Longer May Be False Hope

Life is full of trade-offs, and boomers have made their share. One big one coming home to roost now: A generation that avoided saving in the face of a crumbling pension system has resolved to work longer instead. But things may not be that simple.

Life is full of trade-offs, and boomers have made their share. One big one coming home to roost now: A generation that avoided saving in the face of a crumbling pension system has resolved to work longer instead. But things may not be that simple.

For some, working longer will fix everything. Financial companies have produced lots of research showing that staying at work just four years longer can boost retirement income by a third or more. Planning to work to 66 rather than 62 doesn’t sound so awful or difficult when you are in your 40s. So people spend away.

The surprise comes much later, when you are downsized out of job and find, at age 50-plus, that your re-employment options may be limited. You may also become physically unable to work regular hours or find that you need time off to care for an aging parent or other loved one.

A McKinsey study of retirees in 2006 found that 57% quit work for good earlier than they had expected; 40% were forced to quit because of job loss (44%), their own health (47%) or to become a caregiver (9%). In a more recent survey, the Employee Benefit Research Institute found this year that half of workers will retire earlier than planned because of health issues (51%), job loss (21%), caring for a spouse (19%), or obsolete job skills (11%).

“The strategy of planning to work longer could very well be a false hope,” says Katie Libbe, vice president of Consumer Insights for Allianz Life of North America. “People should be aware of the factors that can derail an extended career. If you or your family members have health issues now or a history of problems, it’s wise to think ahead and save as much as possible.”

The inability of many to work longer also complicates retirement policy issues. In his blog for EBRI, Nevin Adams writes that, mathematically speaking, those with low incomes simply cannot work long enough to make up for lack of savings and an inadequate pension:

“For those counting on that as a retirement savings solution, the answer is not always yes. Indeed, results from the EBRI modeling indicated that the lowest pre-retirement income quartile would need to defer retirement to age 84 before 90% of the households would have even a break-even chance of success.”

So a solution that seems so simple and logical and painless—and complete—may in fact be none of those things. EBRI found that for a third of households, working to age 70 wouldn’t provide enough savings to retire comfortably. I guess that means we’ll be working until we’re 80, if able.

Dan Kadlec is a journalist who has written about personal finance for TIME and other outlets for 25 years. He is the author of three books, a leading voice in the global financial literacy movement, and strategic adviser to the National Financial Educators Council.

Kadlec's latest is A New Purpose: Redefining Money, Family, Work,Retirement, and Success